How Much Can You Afford on a Car?

Before buying a car you must make sure you’ll be able to afford it. Don’t get dreamy about driving around the island in a Mercedes-Benz, when you only have a Toyota-Yaris budget. First, make sure you have a car budget. Use the How Much Car Can You Afford Calculator if you don’t have one already. Work out exactly how much you have to spend on a car and set a price range based on your budget and what you can afford. Your price range should take into account the amount you can pay for the car and still manage to maintain your other responsibilities, such as rent, groceries, savings, gas, etc. You may have enough saved up, but don’t blow your entire personal savings on purchasing a car. See section on savingfor more information.

In addition to the cost of the car itself, you also have to factor in costs for registration, insurance, maintenance and fuel. Some financial experts say that operating expenses can be about one third to one half of the monthly cost of a new car so take the amount you've decided you can spend on your car each month and multiply it by 0.66. That is the most you should consider spending on monthly payments for the vehicle to be able to afford operating expenses as well.

For example, let’s say after you’ve reviewed your budget you decide you can afford to spend $300 on a car each month. You should multiply $300 by 0.66, which would equal $198. That means that your monthly payments for a car loan should not be more than $198 on a $300 a month car budget.

Be sure to factor in shipping costs and custom duties into your car budget if you are purchasing it overseas.

What type of car should you buy?

Before choosing the type of car to buy, there are some important details to consider. Are you licensed to drive a manual or automatic vehicle? Manual cars are often cheaper than automatic cars, and may even cost less to repair. Make sure the car has a good safety rating; some cars are not built to withstand rough roads and may overturn easily. With the BVI’s hilly and rugged terrain, it is important that the car has four wheel drive or a powerful enough engine for safe driving on our roads.

Do you need a small car or a midsize car? A small car is practical and saves fuel, especially if the car is only for you. If it will serve as a family vehicle, you will probably need one with a spacious interior. Also, consider your lifestyle; do you often find yourself having to transport bulky items? If so, maybe you need to get a truck instead of a car. Larger cars, however, have higher costs for registration, servicing, tires and gasoline. Consider your particular needs and buy the type of vehicle that will best suit your needs and your budget.

Make a list of the must-have features your car should have. Eliminate any features you can do without. Getting a car equipped with the latest GPS and video systems in the BVI is simply a waste of money.

Avoid Luxury Wheels*

There's nothing wrong with purchasing a luxury vehicle. However, if you spend an inordinate amount of your income on a vehicle, you are doing yourself a disservice - especially since this asset depreciates so rapidly.

How rapidly does a car depreciate? Obviously, this depends on the make, model, year and demand for the vehicle, but a general rule is that a new car loses 15-20% of its value per year. So, a two-year old car will be worth less than 65% of its purchase price.

In short, especially when you are young, consider buying something that is practical and dependable, with good gas mileage and low monthly payments - or a vehicle you can pay for in cash. In the long run, this will mean you'll have more money to put towards your savings - an asset that will appreciate, rather than depreciate.

*(Excerpt from Investopedia - 6 Simple Steps to $1 Million)

Second Hand Vehicles

Second hand vehicles can be cheaper and still manage to give you what you are looking for at a reduced price. However, you should determine if the car is in good condition and will give you enough mileage for your money. Does the vehicle have a good resale or trade in value? You can opt to buy a second hand vehicle from a dealer, from individuals in the community or from overseas. It is important to have all the legal paperwork in place to make a successful transfer, especially with vehicles purchased overseas to protect against buying stolen property. Make sure the overseas dealer is reputable.

If buying the vehicle from the United States, decrease your chances of buying a ‘lemon’ by checking the CARFAX report for that particular vehicle which will give you a detailed history from a nation-wide database. The CARFAX should reveal previous accidents and any costly hidden problems.

Strongly consider getting a professional inspection of a second-hand vehicle, which will uncover any problems that can be even more expensive to fix later on. Let someone who knows what to look for test drive it to see if there are any issues. Check the mileage/kilometres on the odometer and make sure it doesn't look as if it's been tampered with. The numbers should line up and the mileage/kilometres should match the service history in the car's log book.

Shipping it to the BVI

If you are purchasing a car overseas, there are a number of carriers that can be used to ship your vehicle to the BVI. Shipping rates will differ for each shipping agency and may be calculated according to the distance from which the car is being shipped as well as the size, value and weight of the vehicle. A 700 cubic feet car may cost you about $2000 plus to ship. Some agencies, however, charge a flat shipping rate for a car or jeep of about $1,000. It is best to shop around and see which shipping rate would best suit your needs. Since, most carriers operate using routes, your vehicle will arrive in the territory at the designated time that the shipping route is due in to the territory. For example, if the car is shipped from Miami, it will take about four days to reach the BVI. Although some companies may not ship directly to the BVI, they may ship to nearby ports in Puerto Rico and St. Thomas and then you can arrange for a local carrier to ship the vehicle to the BVI. Some shipping companies also allow you to track your cargo; it’s convenient to track your cargo during shipment to better manage your time for pick up.

Customs duty is charged at 20 percent of the value of the car and shipping costs. You also pay 1 percent wharfage charges. Ensure you arrange early pickup to avoid incurring additional charges from the Ports Authority.

Buying Local

Purchasing a vehicle locally may prove less stressful (and even cheaper) than buying a car overseas. Shop around to choose from a wide range of new and second hand vehicles. Try to negotiate the best price; don’t just accept the sticker price. You can also pay upfront or some dealers have financing options. If you are financing or getting a loan, most dealers require a 10% deposit on the value of the car while you work out a loan from the bank.

Paying for your Car

If using a dealer and you do not have the full amount of money saved for the car, you must deposit 10% of the value of the car with the dealer before your purchase can be finalized. After this is done, you can go to the bank and apply for a loan to pay the outstanding amount. The bank will ask for proof that the deposit has been made. See section on getting a loan for more information. The car will be used as collateral for the loan until you’ve fully paid for it. What this means is that if you consistently miss your monthly car payments or default, the bank will take possession of the car.

You will have to get the car licensed with the Department of Motor Vehicles and insured by an insurance company. See section on insurance for more information.